Lien Law requires landlord authorization of contract for tenant fix-ups
By Michael A. Oxman and
Stephen J. Pagano

New Jersey’s Construction Lien Law provides contractors, subcontractors and suppliers with a powerful tool to help secure payment for labor and material contributed to private projects. A valid construction lien puts the land owner for whom the property improvements were performed at risk of having its property sold to satisfy the lien. Employing that remedy is straightforward for improvements made to real property at the owner’s request. It is not as simple, however, when a contractor contributes to improvements at a tenant’s request. In such cases, the contractor will find itself without an effective lien on the fee simple interest in the improved property unless the property owner gives specific, written authorization for the tenant to proceed with the contemplated work.

The Construction Lien Law provides, in pertinent part, that “if a tenant contracts for improvement of ... real property and the contract for the improvement has not been authorized in writing by the owner of a fee simple interest in the improved real property, the lien shall attach only to the leasehold interest of the tenant.” N.J.S.A. 2A:44A-3. The owner’s written authorization is thus critical when it comes to filing and enforcing a construction lien, since a lien solely on the tenant’s leasehold interest may prove of little value to the contractor. In theory, a contractor has the right to sell the leasehold interest to satisfy his claim. As a practical matter, however, the lienor may find it difficult to monetize the lease, particularly when a potential purchaser may not even have a right to occupy the premises pursuant to the lease’s own terms.

Until recently, New Jersey courts had provided no guidance on the application of the tenant provision of the lien statute. Creative lienors often argued that general terms found in lease agreements granting tenants the right to make unspecified improvements to the property served to satisfy the tenant provision and create a lien on the fee simple interest in the property. Unfortunately for such lienors, the Appellate Division recently construed the statute’s “authorized in writing” requirement to require more than a reference to the work in a lease. Cherry Hill Self Storage v. Racanelli Construction Company, 2007 WL 1756914 (June 18, 2007).

Cont'd next page >>

<< Back